The stakes couldn’t be higher. The polls couldn’t be tighter. And the markets couldn’t be more on edge. As Americans head to the voting booths on Tuesday in one of the most consequential elections in US history, investors around the globe are battening down the hatches for what could be a week of wild swings across financial markets.
Bracing for Market Turbulence
With Democratic challenger Kamala Harris locked in a dead heat with incumbent Republican President Donald Trump, Wall Street is preparing for fireworks no matter the outcome. The *Trump Trade* – a bet that his business-friendly policies would juice stocks, bond yields and the dollar – has fueled rallies in recent weeks even as the president trails in most national polls.
But a surprise survey released Monday showing Harris with a slight edge in the key battleground state of Iowa – once considered safe Trump country – sent tremors through trading floors. The dollar slumped to a two-week low while Treasury yields tumbled as traders ratcheted back bets on a Trump win.
If it’s close, stand by for a long few days.
Jim Reid, Deutsche Bank analyst
Analysts warn that the tighter the margins, the greater the market gyrations in the days ahead. Some swing state results could emerge within hours of polls closing Tuesday evening. But with a record number of mail-in ballots, legal challenges looming and the spectre of recounts, a clear victor may not be known for some time in a race that goes down to the wire.
Investors Weigh Policy Impacts
Beyond the election noise, investors are also assessing the potential market impacts of each candidate’s policy platform. Trump’s promises of more tax cuts, deregulation and import tariffs could boost stocks but also reignite inflation, slowing the Federal Reserve’s plans to cut rates further. A Harris win would likely mean a continuation of the current economic path, though potentially with a bigger fiscal stimulus boost.
The Fed, which has already slashed its benchmark lending rate to near zero, is widely expected to sit tight at its policy meeting on Thursday as it awaits the election outcome. But disappointing jobs data on Friday, showing hiring sharply slowing amid rising coronavirus cases, could give policymakers reason to sound a more dovish note.
Fireworks on Both Sides of the Atlantic
Meanwhile in Britain, the Bank of England is poised on Thursday to deliver its own election-week rate cut to support an economy staggered by renewed pandemic restrictions. While Brexit uncertainty has faded into the background for now, markets are gauging the impact of new finance minister Rachel Reeves’ spending plans on the future rate outlook.
Whilst the fallout from the US elections could quite literally trump whatever goes on in the markets, the mixture of central bankers and politics could well cause fireworks for investors.
Thomas Watts, Abrdn
So as voters cast their ballots, investors are left to cast their bets in a week loaded with event risks. Many may opt to stay planted on the sidelines until the electoral smoke clears. Others may seize on the volatility to make tactical trades. But all will be keeping a close eye on every twist and turn of the 2024 election rollercoaster.
In the end, whether it’s a victorious blue wave or a surprise red ripple, one thing is certain: the reverberations will be felt from Wall Street to Main Street for years to come. The only question is just how bumpy the ride will be getting there. So buckle up and brace for impact – it’s bound to be one heck of a week.
